Fannie Mae Lobbies For Mortgage Interest Deduction To Remain Unchanged In Tax Code

Fannie Mae said Thursday that because the nation’s red-hot housing market is easing, Congress should keep the mortgage interest deduction as it currently appears in the U.S. tax code, believing it is unwise to tamper with potential affordability at this time.

“We need to maintain the other ways the tax code helps families afford housing and build communities, such as low-income housing tax credits,” Fannie Mae’s Chief Executive, Daniel Mudd, told a National Association of Home Builders event in Florida. “These supports are the rebar in the foundation of the American Dream. If you chip at the foundation, you risk a lot.”

Reuters reports that White House is soon expected to unveil a broad proposal to overhaul the tax code based on recommendations from a bipartisan panel. The tax overhauls include a reduction in the mortgage interest deduction that has been hotly contested and met with opposition from housing groups and even some lawmakers.

“Today, with home prices through the roof and families worried sick about making the house payment, now is not the time to make it tougher on folks,” Mudd said.

The CEO called on lawmakers to pass a piece of legislation that stalled last year, which would stiffen oversight of Fannie and its sibling government-sponsored enterprise, Freddie Mac. He said the bill approved by the U.S. House of Representatives would “make housing stronger” by creating a stronger regulator. The legislation has been criticized by the White House for not forcing cuts in Fannie’s and Freddie’s investment portfolio businesses, as a Senate bill would.

Efforts on Capitol Hill to create a new regulator follow multibillion-dollar accounting scandals at both Fannie and Freddie. Problems are still under investigation at Fannie Mae, and could result in a profit restatement of as much as $11 billion. Much debate over GSE legislation in 2005 centered on a provision giving the regulator authority to reduce Fannie’s and Freddie’s $1.5 trillion mortgage portfolios.

• The House bill would authorize, but not require the regulator to make cuts.
• A Senate bill, conversely, would force cuts — by restricting the types of holdings the companies could keep in their portfolios.

Mudd noted the importance of the portfolio business, saying it helps Fannie Mae fulfill its role as a source of liquidity to the mortgage market. The two organizations are designed to support homeownership by keeping money flowing into the mortgage market. They buy mortgages from originators, prividing lenders money to make more loans, then repackage the loans into securities for sale to investors, while retaining loans and securities as investments.

“You have a lot of homes to build over the next decade, about 20 million all told. You’re going to need nearly $4 trillion in acquisition, development and construction financing, just for the single-family homes alone,” Mudd said, adding that the portfolios help the company respond to liquidity needs in the housing market.

“The need is great. The U.S. financial system is incredibly innovative, constantly driving toward more options and lower costs. And Fannie Mae is here to help as much as we can,” he said.